Final Rule: Amendments to Financial Disclosures about ...

1 Conformed to Federal Register version SECURITIES AND EXCHANGE COMMISSION 17 CFR Par ts 210, 230, 239, 240 249, 270, and 274 Release No. 33-10786; 34-88914; IC-33872; File No. S7-05-19 RIN 3235-AL77 Amendments to Financial Disclosures about Acquired and Disposed Businesses AGENCY: Securities and Excha nge Commission. ACTION: Final rule. SUMMARY: We are adopting Amendments to our rules and forms to improve their application, assist registrants in making more meaningful determinations of whether a subsidiary or an acquired or disposed business is significant, and to improve the disclosure requirements for Financial statements relating to acquisitions and dispositions of businesses, including real estate operations and investment companies.

2 The changes are intended to improve for investors the Financial information about acquired or disposed businesses, facilitate more timely access to capital, and reduce the complexity and costs to prepare the disclosure. DATES: Effective Date: The Final rules are effective on January 1, 2021. Compliance Dates: See Section for further information on transitioning to the Final rules. FOR FURTHER INFORMATION CONTACT: Todd E. Hardiman, Associate Chief Accountant, at (202) 551-3516, Jessica Barberich, Associate Chief Accountant, at (202) 551-3782, or Craig Olinger, Senior Advisor to the Chief Accountant, at (202) 551-3400, or Steven G.

3 Hearne, Senior Special Counsel, a t (202) 551-3430, in the Division of Corporation Finance; Joel Cavanaugh, Senior Counsel, at (202) 551-3173, Jenson Wayne, Assistant Chief Accountant, at (202) 551-6918, or Mark T. Uyeda, Senior Special Counsel, at (202) 551-6792, in the Division of Investment Management, Securities and Exchange Commission, 100 F 2 Street, NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: We are adopting Amendments to: Commission Reference CFR Citation (17 CFR) Regulation S-X through Rule 1-02(w) (w) Rule 3-05 Rule 3-06 Rule 3-09 Rule 3-14 Rule 3-18 Rule 5-01 Rule 6-01 Rule 6-02 Rule 6-03 Article 8 Rule 8-01 Rule 8-03 Rule 8-04 Rule 8-05 Rule 8-06 Article 11 Rule 11-01 Rule 11-02 Rule 11-03 Securities Act of 1933 (Securities Act)

4 1 Securities Act Rule 405 Form S-11 Form N-2 and Form N-14 Form 1-A 1 15 77a et seq. 3 Securities Exchange Act of 1934 (Exchange Act)2 Exchange Act Rule 12b-2 Form 8-K Form 10-K Investment Company Act of 1940 (Investment Company Act) 3 Rule 8b-2 We also are adding 17 CFR (new Rule 6-11 ) to Regulation S-X. Table of Contents I. Introduction and Background .. 6 II. Discussion of Final Amendments .. 9 A. Amendments to the Definition of Significant Subsidiary and Generally Applicable Financial Statement Requirements for Acquired Businesses.

5 11 1. Significance Tests .. 13 2. Audited Financial Statements for Significant Acquisitions .. 36 3. Financial Statements for Net Assets that Constitute a business .. 39 4. Financial Statements of a business that includes Oil and Gas Producing Activities .. 47 5. Timing and Terminology of Financial Statement Requirements .. 50 6. Foreign Businesses .. 57 7. Smaller Reporting Companies and Issuers Relying on Regulation A .. 62 B. Amendments Relating to Rule 3-05 Financial Statements Included in Registration Statements and Proxy Statements.

6 66 1. Omission of Rule 3-05 Financial Statements for Businesses That Have Been Included in the Registrant s Financial Statements .. 66 2. Use of Pro Forma Financial Information to Measure Significance .. 72 3. Disclosure Requirements for Individually Insignificant Acquisitions .. 76 C. Rule 3-14 - Financial Statements of Real Estate Operations Acquired or to be Acquired 82 1. Align Rule 3-14 with Rule 3-05 .. 83 2 15 78a et seq. 3 15 80a-1 et seq. 4 2.

7 Definition of Real Estate Operation .. 91 3. Significance Tests .. 94 4. Interim Financial Statements .. 96 5. Smaller Reporting Companies and Issuers Relying on Regulation A .. 97 6. Blind Pool Real Estate Offerings .. 98 D. Pro Forma Financial Information .. 101 1. Adjustment Criteria and Presentation Requirements .. 102 2. Significance and business Dispositions .. 118 3. Smaller Reporting Companies and Issuers Relying on Regulation A .. 121 E. Amendments to Financial Disclosure about Acquisitions Specific to Investment 124 1.

8 Amendments to Significance Tests for Investment 125 2. Proposed Rule 6-11 of Regulation S-X .. 132 3. Pro Forma Financial Information and Supplemental Financial Information .. 141 4. Amendments to Form 143 F. Transition .. 145 III. Other Matters .. 147 IV. Economic Analysis .. 147 A. Introduction .. 147 B. Baseline and Affected Parties .. 150 C. Potential Benefits and Costs of the Final Rule .. 154 1. Potential Benefits .. 154 2. Potential Costs .. 156 D. Economic Effects of Specific Amendments .. 158 1.

9 Significance Tests .. 158 2. Audited Financial Statements for Significant Acquisitions .. 164 3. Financial Statements for Net Assets that Constitute a business .. 165 5 4. Financial Statements of a business that Includes Oil and Gas Producing Activities . 166 5. Timing and Terminology of Financial Statement Requirements .. 167 6. Foreign Businesses .. 167 7. Smaller Reporting Companies and Issuers Relying on Regulation A .. 170 8. Omission of Rule 3-05 and Rule 3-14 Financial Statements and Related Pro Forma Financial Information for Businesses That Have Been Included in the Registrant s Financial Statements.

10 171 9. Use of Pro Forma Financial Information to Measure Significance .. 172 10. Disclosure Requirements for Individually Insignificant Acquisitions .. 173 11. Rule 3-14 - Financial Statements of Real Estate Operations Acquired or to be 175 12. Pro Forma Financial Information .. 176 13. Significance and business Dispositions .. 178 14. Amendments to Financial Disclosure about Acquisitions Specific to Investment 179 E. The Effects on Efficiency, Competition, and Capital Formation .. 183 F. Alternatives Considered.